ISLAMABAD - The Competition Commission of Pakistan (CCP) in its enquiry report has recommended issuing show cause notices to Pakistan Sugar Mills Association (PSMA) and its member mills after finding them in anti-competitive activities.
The CCP has concluded the findings of its enquiry report into the anti-competitive activities in the sugar sector. The CCP has found PSMA and Jehangir Khan Tareen’s owned JDW Sugar Mills in anti-competitive activities. The CCP’s enquiry has found multiple instances where the Pakistan Sugar Mills Association (PSMA) is acting as a front runner for cartelisation in the sugar industry. Evidence gathered during raids on the premises of PSMA and JDW Sugar Mills seems to suggest these anti-competitive activities have continued since 2010.
These also tie up with the findings of CCP’s previous sugar enquiry report in 2009 wherein PSMA had focused on directly fixing prices. In the instant matter it appears that PSMA and its member mills sought to keep prices stable by controlling supply of sugar available in the domestic market. Sugar mills under the auspices of PSMA have managed to adopt a strategy whereby based on coordination of stock positions calculations on export quantities were made. Evidence reveals that PSMA and its member mills were cognisant that exports would lead to two pronged benefits for them: (i) export earnings and subsidy payments; and (ii) achieving/maintaining desired price levels in the domestic market. Policy makers/ Government were then pursued to allow exports (along with subsidy) on the pretext that mills would be unable to pay sugarcane growers unless they were allowed to do so.
Price data suggests that whenever the exports were made domestic prices faced an upward pressure. Calculations show that the benefit accrued to mills on account of rise in domestic prices due to exports alone was approximately Rs40 Billion in revenue during the period February 2019 to September 2019. It would be relevant to add that an amount Rs29.22 billion was also paid as subsidy.
It was also found that PSMA Punjab created zonal division for coordination on sales, stock positions and production quota appears to be none other than monitoring the position with respect to each mill to control local sales. Commercially sensitive stock information was regularly shared between mills which allowed them to set current and future prices for sugar. The recent hike in sugar prices appears to be the direct result of misreporting in sugar stock positions (of which PSMA was aware of) that led to a decision to delay sugar imports. When the issue of mismatch in stock positions was raised, at Sugar Advisory Board (SAB), PSMA denied that it collects stock information and found evidence to the contrary. The enquiry report observed that the decision not to import in a timely manner caused a rise in sugar prices between July to September 2020 by Rs11.6 per kg.
Information available with CCP also seems to indicate that during crushing season 2019-20, 15 sugar mills in the Punjab Zone ceased crushing activities on the call of the association. Although no conclusive evidence that sugar mills had collectively boycotted supply for Utility Store Corporation (USC) tenders, the report did find instances whereby as recently as 2019, PSMA Punjab had divided quantities to be supplied to a USC tender.
According to the enquiry report, sugar being the essential commodity is an important item in the consumer basket of goods however, despite abundant supply it is not available to end consumers at an affordable price. Also it cannot be ignored that the related industries such as beverages, confectionaries etc. being the largest consumers of sugar are also affected due to lack of competition in the sugar industry affects their international competitiveness as well on account of higher cost of production as well as prices.